The Public DebtThis is a featured page

Public Debt: the total accumulation of the deficits (minus the surpluses) the Federal government has incurred over time, which was $7.96 trillion in 2005, of which $3.9 trilllion is held by the public and $4.06 trillion held by Federal Agencies and the Federal Reserve.
Why did public debts emerge?
  • War financing
  • Recessions
  • Fiscal policy
  • Lack of political will by Congress

Ownership:
  • Total public debt ("the national debt")= total amount of money owed by the federal gov. to holders of U.S. Securities or the accumulated total of all the US securities sold to the public and the government.
  • Public, in this case, consists of American individuals in America and abroad, state and local governments, and U.S. financial institutions
    • U.S. Securities (loan instruments): financial instruments issued by the federal gov. to borrow money to finance expenditures that exceed tax revenues
  • Four types of US Securities (in order from short to long term)
      • Treasury bills (short-term securities)
      • Treasury notes (medium-term securities)
      • Treasury bonds (long-term securities)
      • U.S. saving bonds (long-term, non-marketable bonds)
  • Most of the U.S. debt is held internally, as opposed to externally. Foreign ownership consisted of about 25% of the public debt in 2005.

The Public Debt - Welker's Wikinomics Page

Debt and GDP:
  • A wealthy, highly productive nation can incur and carry a large public debt more easily than a poor nation can
  • The size of the debt needs to be assessed in relation to the GDP. If GDP is considerably bigger than the debt, then the debt is fine. However, if the debt is bigger than the GDP, the country may be in some trouble.

International comparisons:
  • It is not uncommon for countries to have public debts.
  • US has the world’s largest public debt, but not largest debt as % of GDP (Italy has the world's largest public debt to GDP ratio)

Interest charges:
  • Primary burden of debt comes from the interest rate payments accruing from bonds sold to finance previous debt.
  • Ex. interest on the total public debt in 2005 was $184 billion, or 1.5% of GDP
  • These interest charges have to be paid back through tax revenue. If not, the national debt builds up.



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Robert.Wang 		Latest page update: made by Robert.Wang , Mar 18 2008, 2:18 PM EDT (about this update About This Update Robert.Wang Edited by Robert.Wang


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